Question

Summarize IFRS/GAAP differences from the following:

Differences • Presentation of the income statement under GAAP follows either a single-step or multiple-step format. IFRS does not mention a single-step or multiple-step approach.
• Under IFRS, companies must classify expenses by either nature or function. GAAP does not have that requirement, but the SEC requires a functional presentation.
• IFRS identifies certain minimum items that should be presented on the income statement. GAAP has no minimum information requirements. However, the SEC rules have more rigor-ous presentation requirements.
• IFRS does not define key measures like income from operations. SEC regulations define many key measures and provide requirements and limitations on companies reporting non-GAAP/ IFRS information.
• Under IFRS, revaluation of property, plant, and equipment, and intangible assets is permitted, with gains reported as other comprehensive income. The effect of this difference is that applica-tion of IFRS results in more transactions affecting equity but not net income.

Answer 1

Part 1

IFRS allows either natural or functional classification of expenses, but if the functional presentation is used, specific disclosures in the notes are required about the nature of expenses. US GAAP has no general requirement, but the SEC requires that expenses be based on the functional classification.

Part 3

• GAAP—Under a single-step format, the classification of all expenses is done by functions, and then those functions are deducted from the total income in order to derive income before tax. The multi-step format comprises a gross profit section where the cost of sales is deducted from sales, followed by the presentation of other income and expenses to reach an income before tax. However IFRS do not have any such requirement.

  Part 2

• IFRS—The IFRS requires a minimum presentation of the following items in the income statement:

• revenue
• finance cost
• share of post-tax results of associates and JV (joint ventures) accounted for using the equity method
• tax expense
• after tax gain or loss that is attributable to the results and to the re-measurement of discounted operations
• profit or loss for the period

however no such requirement is given under GAAP. Though for the presentation of userful information to the users of the financial statements, SEC has imposed various measures which company must adhere to including the minimum requirements of what to present in the FS

Part 4

GAAP—It is required in limited situations under GAAP. for example, in case of receivables with greater than one-year payment terms, or in situations like retail land sales or license agreements for TV programs or movies.

IFRS—Where inflow of cash or cash equivalent is deferred, discounting of revenue to PV (present value) is required. It may result in lower revenue because the time value part of the actual receivable is recognized as interest/finance income.

Part 5

In US GAAP, revaluation May be recognized in the income statement as they occur or deferred through a corridor approach. However in IFRS shall be recognized in the income statement as they occur or deferred through a corridor approach. However, entities can also elect to recognize gains and losses immediately in other comprehensive income. Gains or losses recognized immediately in other comprehensive income are not subsequently recognized in the income statement.